Assessing Consumer Spending Momentum: Insights from US July Consumer Credit Data

The July 2025 US consumer credit data paints a nuanced picture of consumer behavior, offering early signals of both economic resilience and potential overleveraging. According to the Federal Reserve’s G.19 report, consumer credit expanded at a seasonally adjusted annual rate of 3.8 percent, driven by a sharp 9.7 percent surge in revolving credit—primarily credit cards—while nonrevolving credit (e.g., auto loans) grew modestly at 1.8 percent [1]. This divergence suggests a shift in borrowing patterns, with households increasingly relying on high-cost, flexible credit amid tighter lending standards and historically elevated interest rates [3].

Resilience in a Tightened Credit Environment

Despite the Federal Reserve’s aggressive rate hikes, consumer demand for credit has not collapsed. The persistence of auto loan demand, for instance, reflects confidence in durable goods spending, a sector that has historically served as a barometer for economic health [2]. Meanwhile, older consumers—whose savings and home equity have provided a buffer against rising costs—continue to support overall spending momentum [1].

However, the data also reveals troubling trends. Credit card delinquency rates, while stabilizing in some metrics, remain elevated. Equifax reported a 2.79 percent bankcard delinquency rate in June 2025, down from a peak of 3.22 percent in November 2024 [2]. Yet, the Federal Reserve notes that 12.3 percent of credit card debt was at least 90 days delinquent in Q2 2025, a sharp increase from pre-pandemic levels [3]. This dichotomy underscores the uneven impact of tightening credit: while prime borrowers manage their obligations, subprime households face mounting strain.

The Overleveraging Risk

The rapid growth in revolving credit raises concerns about overleveraging. With banks tightening collateral requirements and credit limits [2], households are increasingly reliant on high-interest debt to maintain spending. Large banks’ credit card interest rates hit a series high in July 2025, compounding the burden on borrowers [3]. TransUnion’s 2025 forecast warns that while credit card balances are expected to grow at a slower 4.4 percent year-over-year rate by year-end, the risk of a delinquency spike remains, particularly if unemployment rises toward 4.8 percent in early 2026 [4].

Student loan delinquency further exacerbates the risk. After a five-year suspension of reporting, severe delinquency rates (90+ days past due) surged to 17.95 percent in June 2025 [2]. This “reality check” for borrowers could dampen discretionary spending and broader economic momentum in the coming quarters.

Broader Economic Context

The economic backdrop adds complexity. Deloitte’s Q2 2025 forecast projects real GDP growth of 1.7 percent for the year, with slowing momentum in Q3 and Q4 due to higher tariffs and a revised New York Fed Nowcast [5]. While the labor market remains relatively stable—projected to average 4.2 percent unemployment in 2025—wage growth has not kept pace with inflation, forcing households to rely on credit to bridge the gap [3].

The “One Big Beautiful Bill,” a legislative package aimed at boosting economic confidence, has yet to deliver tangible benefits. Its delayed impact suggests that consumers may continue to stretch their finances until mid-2026, when its provisions are expected to fully materialize [5].

Investment Implications

For investors, the July data highlights a delicate balance. Financial institutions may benefit from higher interest income, particularly in credit cards, but rising delinquencies could pressure loan loss reserves. Conversely, consumer discretionary sectors—especially auto and retail—could see sustained demand if households maintain their reliance on nonrevolving credit. However, a surge in credit card defaults or student loan distress could trigger a broader slowdown, particularly in Q4 2025 and early 2026 [5].

In this environment, defensive strategies—such as overweighting sectors insulated from consumer spending (e.g., healthcare) or investing in high-quality debt—may offer better risk-adjusted returns. At the same time, monitoring delinquency trends and GDP forecasts will be critical for navigating the tightening credit cycle.

**Source:[1] Federal Reserve Board - Consumer Credit - G.19,
https://www.federalreserve.gov/releases/g19/current/[2] The July 2025 Senior Loan Officer Opinion Survey on Bank Lending Practices,
https://www.federalreserve.gov/data/sloos/sloos-202507.htm[3] Large Bank Credit Card and Mortgage Data,
https://www.philadelphiafed.org/surveys-and-data/large-bank-credit-card-and-mortgage-data[4] TransUnion 2025 Consumer Credit Forecast Points to ...,
https://newsroom.transunion.com/2025-Consumer-Credit-Forecast/[5] US economic outlook July 2025,
https://www.ey.com/en_us/insights/strategy/macroeconomics/us-economic-outlook